Cross-border e-commerce: Is India missing out on a big export trend?
Export stakeholders in India are still looking at cross-border e-commerce (CBEC) as a fringe export business, unlike China, which has been pushing CBEC exports for over a decade now. This needs to change since with CBEC, SMEs, too, can access the benefits that international e-commerce brings.
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Cross-border e-commerce (CBEC) involves the purchasing or selling of products via online shopping channels across national borders. In recent years, cross-border e-commerce (CBEC) has risen to become a major force in B2C (business to consumer) as well as B2B (business to business) segments. Amazon Global is the only company that is active in sourcing from India and its efforts have shown good results. It has enrolled over 70,000 Indian sellers on its global platforms with an annual export of over US$ 1 billion. Amazon expects that this figure will rise to US$ 5 billion by 2025.
Export stakeholders in India are still looking at CBEC as a fringe export business, unlike China, which has been pushing CBEC exports for over a decade now. There had been no concerted efforts to enter this burgeoning sector in any meaningful way.
Riding the post-pandemic e-tail wave
E-commerce was already growing at a fast pace prior to COVID-19 and the growth has only accelerated, looking at the post-Covid results. A recent growth trend has been the rise of CBEC, especially in the US and China. This has been possible due to the high De Minimis duty threshold, that is imports are duty-free if they fall below a certain threshold, for example, US$ 800 in the US, US$ 177.30 in the EU, and US$ 3,782 (annual) in China.
CBEC market size by country
|Country/region||Market size (2018)||Market size (2020)||Growth (2020)|
|USA||US$ 517 bn||US$ 759.47 bn||31%|
|China -50% of global market||US$ 723 bn||US$ 1,117 bn||30%|
|Japan||US$ 89 bn||US$ 105 bn||19%|
|Korea||US$ 65 bn||US$ 74 bn||22%|
|Malaysia||US$ 0.73 bn||US$ 4 bn||11.8%|
|Thailand||US$ 4.3 bn||US$ 7 bn||10.4%|
The value of cross-border e-commerce has been predicted to grow by 25% a year – almost twice as fast as domestic e-commerce. According to estimates, in 2020, 1 in every 5 e-commerce dollars was generated via cross-border trade – and it’s not only the big companies that can benefit: SMEs too can access the benefits that international e-commerce brings.
According to a report by Zion Research, the total value of all global cross-border e-commerce hit US$ 562.1 billion in 2018 and is expected to reach over US$ 4 trillion by 2027 – increasing at a CAGR of 27.4%. A recent study of apparel shoppers across 11 countries revealed that over two-thirds (67%) of them had purchased something from abroad in the last 12 months. Even 1% market share comes to US$ 40 billion in exports for India.
Tapping the largest CBEC market
Growing at 30%, China is the largest CBEC market in the world. The Chinese government looks at CBEC as one of the pillars of its import and export growth engine. Premier Li Keqiang reiterated the government’s support for accelerating the growth of CBEC and enhancing the country’s international shipping capacity in the 2020 Government Work Report.
In fact, over the last several years, the government has been rolling out policies, including adding new CBEC pilot zones and pilot cities for CBEC retail importation, extending the CBEC retail import list, and lowering tax and tariffs, in a bid to boost CBEC. In January 2020, 50 cities were added to the existing 36 pilot cities for CBEC retail importation. In May 2020, the State Council unveiled 46 new comprehensive pilot zones for CBEC, bringing the total number of CBEC pilot zones in China to 105.
China had understood the growth of CBEC and it has been increasing its presence for the past decade. In the last six years, the proportion of China’s CBEC exports in the country’s total foreign trade jumped from 2.2% to 11.25%. It is already putting a proactive policy framework in place to promote CBEC in the RCEP region when the Regional Agreement comes into force sometime in 2022. Guangzhou is the first city in China to issue special policies to help the local business community benefit from the RCEP – when it enters into force. Guangzhou has proposed to address the following five aspects:
- Optimize the business environment for CBEC
- Foster the main market players
- Strengthen innovation capacity
- Expand international marketing network
- Enhance the training of professionals
Big platforms such as Alibaba’s TMall encourage big brands to come to China and has created warehouses and consolidation centres in strategically located sites in Europe and US. India is not considered a major source and is ignored by these malls. To sell Indian products from SMEs, these should be introduced through social media selling platforms such as Wechat, which are becoming very popular and where costs are lower.
China presents the most exciting CBEC opportunity today. CBEC is largely free from non-tariff export barriers, which are very common in China. Not only imports are duty-free if below US$ 727 single purchase and US$ 3,782 annually per head for over 1,300 products but VAT is also reduced by 30%. India can sell a large number of items on the Chinese positive list. Even OTC medicines were added to the approved retail import CBEC list (positive list) in January 2020.
However, China is not the only country where CBEC is growing at a fast rate. Shopee, the major platform in ASEAN countries is now embarking on an expansion program to enter Latin America. Jumia and its rival DHL are expanding their operations in the African market, which today represents a US$ 25 billion market.
However, to gain a share of the burgeoning CBEC market, the government needs to create an ecosystem where CBEC exports can flourish. Through its agencies, the government must come up with end-to-end logistics and fulfillment policies for which the Chinese government has made major concessions for foreign entities to operate CBEC from pilot zones on the mainland.
Export promotion councils (EPCs) are generally sector-specific, while CBEC encompasses a wide range of sectors. Besides, the present orientation of EPC is primarily B2B facilitation and they are not equipped for direct B2C interactions. In CBEC, the focus is not on trade fairs but on facilitating the use of fulfillment services for the selling platforms to the Indian exporters. Further, CBEC promotion requires facilitating the consolidation of consignments from SMEs throughout India, overcoming language & cultural barriers, facilitating interaction with fulfillment services etc. All these new responsibilities are far removed from the EPC’s traditional role. Therefore, a new EPC is required to take on this role and to put the whole seamless process in place.
Amazon Global’s success lies in its total control over the back-room fulfillment services, from collecting the consignments from India to the final delivery to customers. Unless, such a fulfillment service can be created for Indian products, breaking into CBEC markets is difficult. A comprehensive strategy on leveraging CBEC markets can not only give a boost to SME export firms but also international logistics, cross-border payment mechanisms, and supply-chain finance. A US$ 10 billion target in 3-5 years is not beyond reach.
Suhayl Abidi is Research Advisor, GOG-AMA Centre for International Trade & Consultant, Centre for VUCA Studies, Amity University. Views are personal.